Union Budget 2026 Highlights: A Complete Overview

The Union Budget 2026, presented on Sunday, 1 February 2026, marks a historic moment as the first-ever Sunday Budget and the ninth consecutive Budget presented by the Finance Minister. The budget sets a clear roadmap focused on economic growth, infrastructure expansion, MSME empowerment, manufacturing strength, job creation, and ease of doing business, while maintaining fiscal discipline.

This blog provides a clear and comprehensive summary of all major announcements made in Union Budget 2026.

1. Budget Size & Fiscal Discipline

The government continues its commitment to fiscal consolidation while supporting growth.

Key fiscal numbers:

• Estimated Budget Size: ₹54.1 lakh crore
  
  
• Fiscal Deficit Target (FY 2026-27): 4.3% of GDP
  
  
• Debt-to-GDP Ratio Goal: Around 55.6%
  
  
• Gross Market Borrowing: ₹17.2 lakh crore

These numbers reflect a balanced approach—boosting investment while keeping long-term debt sustainability in focus.

2. Massive Push for Capital Expenditure & Infrastructure

Infrastructure remains a central pillar of the Union Budget 2026.

Capital Expenditure

• Capex Allocation: ₹12.2 lakh crore for FY27
  
  
• Increased from ₹11.2 lakh crore in the previous year, reinforcing long-term economic capacity.

Transport & Connectivity Initiatives

• Seven High-Speed Rail Corridors planned, including:
  
  
  • Mumbai–Pune
    
    
  • Pune–Hyderabad
    
    
  • Hyderabad–Bengaluru
    
    
  • Delhi–Varanasi
    
    
  • Varanasi–Siliguri (and additional corridors)
    
    
• New Dedicated Freight Corridor: Dankuni–Surat
  
  
• 20 New National Waterways announced to improve inland transport efficiency

These measures aim to reduce logistics costs, enhance trade flow, and improve regional connectivity.

3. Income Tax & Direct Tax Announcements

Income Tax Slabs

• No change in income tax slabs for FY 2026-27 under both old and new regimes
  
  
• Provides certainty and stability for individual taxpayers

New Income Tax Act

• A new Income Tax Act will be introduced from 1 April 2026
  
  
• Objective: simplify provisions, reduce litigation, and improve compliance clarity

ITR Filing Relief

• Revised return filing deadline extended to 31 March 2027
  
  
• Nominal late fee applicable, offering flexibility to correct errors

4. TDS, TCS & Compliance Reforms

Several compliance-related clarifications were announced to reduce ambiguity and burden:

• TDS on Manpower Services:
  Payments for supply of manpower services will now clearly fall under contractor-related TDS provisions
  
  
• TDS/TCS Rationalisation:
  Multiple provisions streamlined to reduce unnecessary compliance hurdles
  
  
• TCS under LRS Reduced:
  
  
  • Overseas tour packages
    
    
  • Education and medical remittances
    → TCS reduced to 2% (from earlier 5%–20%)
    
• Motor Accident Compensation:
  
  
  • Interest received on motor accident claims is now fully tax-free
    
    
  • No TDS deduction will apply

5. Capital Markets & Corporate Tax Changes

Stock Buyback Taxation

• Stock buybacks will now be taxed as capital gains
  
  
• Dividend-based taxation route discontinued for buybacks
  

MAT Rate Reduction

• Minimum Alternate Tax (MAT) reduced from 15% to 14%
  
  
• In certain cases, MAT will be treated as a final tax, providing clarity to corporates
  

STT on Derivatives Increased

• Futures: 0.02% → 0.05%
  
  
• Options: Increased on premium and exercise value

This move aims to curb excessive speculative trading in the derivatives market.

6. Strong Support for MSMEs & SMEs

Union Budget 2026 places strong emphasis on MSME growth and employment generation.

Key initiatives include:

• ₹10,000 crore SME Growth Fund to build future-ready enterprises
  
  
• Enhanced credit support and incentives for MSMEs
  
  
• ₹2,000 crore top-up to the Self-Reliant India Fund

The focus remains on improving access to finance, strengthening domestic supply chains, and supporting job creation.

7. Customs Duty & Trade Reforms

Manufacturing-Focused Duty Rationalisation

• Customs duty structure simplified
  
  
• Duty on select imported manufacturing inputs reduced from ~20% to ~10%
  

Export & Import Support

• Duty-free import limits increased for seafood exports
  
  
• Export timelines extended for leather and textile products
  
  
• Import duty on personal-use goods reduced to 10%

Healthcare Relief

• Basic customs duty waived on:
  
  
  • 17 cancer drugs
    
    
  • Medicines for 7 rare diseases

This improves affordability and access to critical treatments.

8. Strategic Sectors & Manufacturing Push

Biopharma & R&D

• Biopharma Shakti: ₹10,000 crore over 5 years to support manufacturing and innovation
  

Rare Earth & Semiconductor Ecosystem

• Rare Earth Corridors in:
  
  
  • Odisha
    
    
  • Kerala
    
    
  • Andhra Pradesh
    
    
  • Tamil Nadu
    
    
• Semiconductor Mission 2.0 to strengthen domestic chip manufacturing
  

Electronics & Defence

• Electronics components manufacturing allocation increased to ₹40,000 crore
  
  
• Duty exemptions for aircraft manufacturing and MRO activities

9. Additional Key Announcements

• One-time foreign asset disclosure window for small taxpayers with immunity
  
  
• Single digital window for customs clearance approvals
  
  
• Faster customs processes for Authorised Economic Operators (AEOs)
  
  
• Education-to-Employment Committee for skills and job alignment
  
  
• Continued focus on tourism, sports, textiles, women-led enterprises, and container manufacturing

Overall Budget Theme

Union Budget 2026 is built around:

• Sustainable economic growth
  
  
• Infrastructure-led development
  
  
• Manufacturing and export competitiveness
  
  
• MSME empowerment
  
  
• Simplified taxation and compliance
  
  
• Job creation and skill development

10. Attracting Global Business & Investment

Tax Holiday for Cloud Services:

Foreign companies providing global cloud services using data centres located in India will get a tax holiday till 2047.

MAT Exemption for Non-Residents:

Non-residents paying tax under the presumptive taxation scheme will be fully exempt from Minimum Alternate Tax (MAT).

Income Tax Exemption for Capital Goods Supply:

Non-residents supplying capital goods, equipment, or tooling to toll manufacturers in bonded zones will get a 5-year income tax exemption.

11. MAT Credit Rationalisation to Encourage New Tax Regime

Set-off of brought-forward MAT credit will be allowed only for companies opting for the new tax regime.

MAT credit utilisation will be capped at 25% of the tax liability under the new regime.

12. Special Economic Zone (SEZ) Relief Measures

A one-time measure will allow eligible SEZ manufacturing units to sell goods to the Domestic Tariff Area (DTA) at concessional duty rates.

Conclusion

Union Budget 2026 strikes a careful balance between growth ambitions and fiscal responsibility. With strong infrastructure investment, targeted tax reforms, MSME support, and strategic manufacturing initiatives, the budget lays a solid foundation for India’s medium- to long-term economic trajectory.